Individuals’ Responses to Social Security Reform

Published: 2008


The Social Security trust fund is predicted to be depleted by 2041. While there are several viable reform proposals to restore long-term solvency of the Social Security system, one important element that is critical to the success of any reform remains unknown: how will individuals respond to, for example, a cut of their Social Security benefits. Will they work longer or save more or both, and to what extent will their response make up for the cut in benefits? In this paper we use data from the HRS Internet Survey where we asked respondents directly what they would do if everyone’s Social Security benefits were cut by 30 percent. At a qualitative level, we find important differences in the response by sex, marital status, and SES, among others. We conduct a detailed quantitative analysis of response to timing of Social security claiming and find that on average individuals would postpone claiming Social Security by 1.13 years. If this time was spent working by everyone then the annual Social Security benefit would drop on average by 20 percent rather than the initial 30 percent imposed by the reform. In other words the response to claim later and work longer would make up for one third of the initial cut in Social Security benefits.

Key Findings

    • We analyze what people in their 50s and 60s say they would do if everyone’s Social Security benefits were cut by 30 percent. About a third report that they would only reduce spending, while another third report that they would both work longer and reduce spending.  About 9 percent would only consider working longer as a response to the cut in benefits.
    • Social Security claiming would be postponed by 1.13 years on average in response to the benefit cut. Working longer and claiming Social Security later would compensate partially for the loss in benefits. The average drop in benefits would be 20 rather than 30 percent.